Business groups back in court seeking to block Arizona minimum-wage increase

Attorneys for various business interests asked a Maricopa County Superior Court judge Tuesday to stall implementation of the minimum-wage increase that voters overwhelmingly passed in November.

If the judge issues a preliminary injunction, the attorneys said, they will prove that the ballot measure is unconstitutional and harmful to a broad swath of Arizona, from people who depend on state services, to state agencies, to employees who may be fired because businesses can't afford the higher wage.

A quick ruling is expected from Judge Daniel Kiley on whether to postpone the minimum wage increase scheduled to take effect Jan. 1.

Attorneys for the state, as well as the committee that brought Proposition 206 to the statewide ballot last month, countered the business interests' arguments have no merit since they revolve around the faulty assertion the state must pay the higher wage. The state is exempt from the provisions of Prop. 206.

The ballot measure first increases the minimum wage to $10 an hour from the current $8.05. After that, it increases the wage 50 cents a year, topping out at $12 by 2020.

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Strong support at the polls

Prop. 206 passed Nov. 8 with 58 percent of voters in favor. Five weeks later, business groups led by the Arizona Chamber of Commerce & Industry sued, arguing the new law is unconstitutional. Last week, they lost a request for a temporary restraining order.

On Tuesday, they were back before Kiley, arguing for a preliminary injunction. If granted, it would halt the wage increase until a fuller court case can be heard on the matter.

The proceedings presented an odd dynamic: Business groups arguing the interests of state agencies even as Gov. Doug Ducey has remained silent on the challenge to Prop. 206.

Attorney Brett Johnson said the minimum-wage increase creates a "dire situation" for state finances. That's because state agencies, led by AHCCCS, the state's Medicaid program, will have to increase their payments to various contractors so those contractors can cover higher payroll costs. Last week, the Arizona Health Care Cost Containment System said it will cost the agency $45 million to cover increased contract costs over the next six months. It found the extra funding in its current budget, but that money won't be there for future years.

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In another example of how the state is affected by the higher minimum wage, the state Industrial Commission will have to spend money to develop new policies to comply with Prop. 206, including its requirement for paid sick leave, Johnson said.

“As long as the state government feels it has no choice but to spend that money, then it is in violation of the constitution," Johnson said.

Show me the money

The Arizona Constitution requires any ballot measure that triggers a mandatory expenditure of state revenue to identify a funding source. Prop. 206 did not do that.

But attorney Charles Grube of the state Attorney General's Office, argued there was no need to do so, as Prop. 206 exempted the state from the minimum-wage requirements.

There is a difference, he told the judge, between a mandatory payment and an indirect cost. Almost any change in state policy carries some sort of indirect cost, he noted, yet attorneys have not rushed to court to demand an identified funding source.

In the case of AHCCCS, the agency was not compelled to raise its payments, Grube said. He rejected arguments that federal Medicaid requirements mandate a higher rate, saying the federal government can't force the state to spend money it doesn't have.

Attorney Jim Barton, representing the Arizonans for Fair Wages and Healthy Families committee, noted the business groups were taking a stance in defense of state agencies. Yet, there were no state agencies standing with the business groups; instead, they are defendants in the case and have taken no position on the litigation.

Are wages and benefits separate issues?

Attorneys also debated whether Prop. 206 violated state provisions requiring ballot measures and laws to deal with only one topic at a time. The business groups argued that by combining a wage hike with a requirement for paid sick leave, Prop. 206 violated those standards.

But Barton said the two issues are closely linked and are referenced together in existing state law. Besides, any challenge on the single-subject argument must be raised before a measure goes to the ballot, not afterward.

Kiley took the case under advisement. A ruling is expected soon, given the Jan. 1 effective date of the higher wage.

All parties are expecting Kiley's ruling, whichever way it falls, to be appealed, ultimately to the state Supreme Court. What is unclear is whether the wage will be in effect, or on hold, while that court fight continues.

Reach the reporter at maryjo.pitzl@arizonarepublic.com and follow her on Twitter at @maryjpitzl.